Inflation stubbornly remains at 8.7% in May

The latest figures from the Office for National Statistics (ONS) revealed on Wednesday that May’s inflation rate stubbornly remained at 8.7% - the exact same as the previous rate in April (ONS: June, 2023).  

This marks the end to the downward trend seen in the UK’s inflation figures over the past few months. Last year, inflation figures peaked at 11.1% and have been falling steadily since then. The inflation rate stagnation is both surprising and concerning, as many analysts had predicted a continued fall into May.  

Core inflation, which is the rate of inflation calculated after excluding ‘volatiles’ such as food and energy costs, rose by 7.1% in the 12 months to May. This is up from 6.8% in April and marks the highest recorded rate since March 1992.

With Prime Minister Rishi Sunak maintaining his pledge to halve inflation this year, the pressure is on to get inflation under control so that the UK doesn’t continue to fall behind other major economies (BBC: June, 2023).

What is inflation and how is it measured? 

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affect the cost of living. For example, if the price of a bottle milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.

Why is UK inflation worse than other major economies? 

The UK appears to be an outlier amongst other major economies. In France, the rate of inflation fell from 6.9% in April to 6% in May and in Germany the rate of inflation fell from 6.8% in April to 6.3% in May. Not only is the UK’s inflation rate significantly higher at 8.7%, but it is also stagnating there (The Guardian: June 2023).  

One major factor that sets the UK apart is its imports. The UK imports more than half of its food and imports have been badly affected by rising raw materials costs as well as new Brexit related laws and regulations. On top of that, food itself has seen inflation rates as high as 18%, which has been pushing the overall inflation rate even higher.  

Another major factor is the jobs market in the UK, which has been struggling to recover post-COVID. Brexit visa rules have been making it more complicated for new workers from outside the UK to join the workforce, and many older workers are retiring from the employment scene. France, for example, has a higher rate of worker participation than before the pandemic. While in the UK this participation rate has declined, driving up wages and keeping pressure on prices.

With the rate of inflation in the UK stubbornly maintaining its high, it’s more important than ever to make sure your finances are handled responsibly and with the right guidance. At TPO, we understand the stress surrounding the current economic climate. As a chartered Financial Planning Firm, our advisers are unbiased, meaning that they can give whole of market advice, and so are best placed to give you a life plan tailored exactly to your personal financial goals.   

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch.

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